As an attorney, one of the most common questions I’m asked is about business entities:
How do I create one?
Which one do I create?
What does any of it even mean?!
The short answer, is that it depends. It depends on what you’re looking to create, how you want your actual business structure to operate, and how much you’re wanting to scale the company. BUT – even if you’re just starting out, there are a few things you need to know, to make sure you aren’t running your business illegally (which is never ideal.)
Let’s dive in:
STEP 1: Decide on your Business Name + Make sure No one else is already using that name!
So the first thing to do when you decide to start a business, is to decide what you’re going to call that business, right? Maybe you’re operating just under your own name, which is fine! Or maybe you’ve got a really catchy business name you’re in LOVE with, and you want to use that. Either way – as soon as you decide on what you’re going to call your business, make sure no one else is already using that name!
It’s really easy to overlook this step – especially if you’re just using your own name. Why? Because we get so excited and caught up in the momentum of what we are creating, what the business and brand (and marketing!) will look like, we forget to make sure the name is actually available.
So how do we do this?
- Good ole’ Internet Search.
Google it. Look up the name on social media. Make sure no one else is already running a similar business with that same name! (If they are – be glad you found out now, rather than 6 months down the road, after you’ve invested in a website, logo, and marketing under this name.)
- U.S. Patent & Trademark Office Search
This is how you can check to see if someone has registered a trademark using the name you want to use. CLICK HERE to go to the search page, and type in the name you want to use. (PRO TIP: After you search your exact business name, type in a few similar names, too, to see what’s registered. Under U.S. Trademark law, even if no one has registered something exactly the same, if someone else is using something confusingly similar, you might still be prevented from using the business name.)
STEP 2: DECIDE ON YOUR BUSINESS ENTITY
Once you’ve decided you’re in the clear to use your business name, you’ll want to think about how to run this new business! There are two business entities/structures that are by far the most common in the online business space: the sole proprietorship, and the LLC.
- Sole Proprietorship
So, this is just a fancy term for when you’re running a business but haven’t registered a separate entity. If you’re running a coaching business right now and haven’t done anything about registering, congratulations! You are operating as a sole proprietor. Couple things to know here.
First, if your business name is anything other than your legal name, you’ll need to register what’s called a “DBA” which just stands for “Doing Business As.” For example, if your name is Sarah Jones, and your business is called Sarah Jones’ Coaching = you’re okay. If it’s called “Blue Unicorn Coaching” …listen up. You’ll want to register as a DBA in your county, in order to do business under that name. It’s a pretty simple process – you’ll file a form + pay a small fee, then just keep up with any annual maintenance.
As far as what a sole proprietorship is: it is a way to do business as an extension of yourself as an individual. This mean you aren’t actually creating a business entity that’s separate from yourself personally. The positives here = cheap and easy. It costs almost nothing to start (unless you need to register a DBA), and you pretty must just start doing business, in order to create a sole proprietorship.
The potential downside is that, since you aren’t creating a separate legal entity, you aren’t shielding yourself from any potential liability you expose yourself to as a business owner. So if your business is sued for any reason, it would be your business and your personal assets that could be reachable.
- Limited Liability Company (LLC)
The most common business entity small business owners and entrepreneurs create is called a Limited Liability Company, or “LLC” as I’m sure many of you have heard. An LLC (when created correctly) IS a separate legal entity, which means you’ll be operating a business that is separate from your personal finances. Couple things to keep in mind here.
First – make sure you set up your LLC correctly. It’s a little different in each state, but usually pretty simple, and it involves filling out and registering several forms, plus paying an annual fee. THIS is a useful guide to setting up an LLC in your state. For the setup process, I highly recommend talking to an attorney in your state, to make sure you are doing it correctly! (If you don’t do it correctly, it’s the same as not doing it at all…so it’s worth it to make sure it’s done right!)
Second – Once the LLC is set up, there is an annual fee to keep the LLC current, and, you want to make sure you’re filing taxes correctly. This is something you’ll need an accountant for! If you don’t do this the right way, your LLC can be suspended by the franchise tax board (NOT IDEAL) and during the entire time it’s suspended, you won’t be able to do business under that name.
STEP 3: RUNNING THE BUSINESS
Now that you’ve secured a business name and properly registered an entity or started doing business as a sole proprietor, there’s a couple more things I want to mention.
- Keep your business finances separate!
Open a business checking account, to keep ALL your business revenue and expenses separate from your personal money. This is extremely important if you’ve created a business entity like an LLC, since you need to keep those finances separate, but it’s important even if you’re a sole proprietor. When it comes time to file taxes, you’ll need a clear record of how much money went in, and how much went out, as well as any other expenses and things you can deduct. If it’s all in one account, it makes things SO MUCH easier. Plus, if you are audited or have any other issues, you’ll want all your business finances separate as well.
- Think about Protecting Your Business Name
Once you are confident you are using a unique and original business name, and you start doing business using that name, you will want to think about protecting that business (or course, or tagline) by filing a trademark application with the U.S. Patent & Trademark Office (USPTO). This is how to formally register for federal (nationwide) protection of your business name. While you do get a certain level of protection just by using your business name or tagline in connection with your business, registering the mark gives you a higher level of protection, and allows you to go after anyone else who may start using your same business name, or otherwise infringing on your rights.
Need help with this? Happy to answer any questions! firstname.lastname@example.org
Christy Westerfeld, Esq. is an attorney and legal resource for online entrepreneurs and coaches. She helps savvy business women cut through the confusion and overwhelm of legal and create an easy and affordable plan of action to legally protect their businesses. While legal may not be #1 on your list of exciting topics, understanding the basics is VITAL to your success as an entrepreneur, and Christy will help you learn what you need to know, in a way that is easy to understand! When she isn’t working, you’ll find Christy chasing after her toddler, binge-watching “Suits,” or signing up for the latest beach city half marathon.